£500k he doesn't know what to do with

El_Torro

I have a relative who's selling up his Buy to Let Portfolio. Once it's all gone he should have roughly £500k in cash that he wants to put somewhere suitable. To give you an idea of his circumstances:

70 years old, claiming State Pension.
Owns the property he lives in, no mortgage.
A DB pension that covers most of his expenditure (along with the State Pension). In a typical year he spends maybe £10k more than what he gets from his pensions.
Roughly £100k in cash (including maxed out Premium Bonds).
Roughly £100k invested in Hargreaves Lansdown, in a 60/40 global multi asset tracker fund. This money isn't wrapped, i.e. not in an ISA.
A couple hundred K in St James' Place (I know, I know...). Most of this money isn't wrapped, though every year SJP transfer £20k to an ISA, using up all his allowance.
No dependents or spouse. He does have a couple of adult kids who I'm sure would be happy to inherit whatever is left when the time comes.

So as shown above he doesn't really need that incoming £500k, even taking into account the fact that he will no longer be getting a BTL income. His objective for the money is to see it grow at least as fast as inflation. The only real big potential expenditure he sees is if he needs to go into a care home in the future (currently in good health). If he were to go into a care home then selling his house should pay for the first few years of fees anyway.

My suggestion for the money is to put it in HL, on top of the £100k that's already there. An extra £500k in a 60/40 global asset fund seems sensible to me. If he starts to run low on cash (or indeed does go into a care home) then this money can be derisked or some converted to cash when the time is right. 

I have some additional thoughts on the situation but based on the above I would like to know if any of you have any further ideas on what would be suitable to do with this cash. 

Alistair31

Might it be wise to give some to his adult children ? 

Linton

It is difficult to suggest an investment approach for someone who doesnt know why they are investing and for what timeframe. Perhaps the most urgent activity would be for him to decide how he wants to use the money.  Does he really want to die leaving £500K+ of assets? Is there someone or something who he feels deserves his money? If that is the case perhaps he could distribute some now - it would be more beneficial to the recipients than in perhaps 20 years time.

Growing as fast as inflation is not an easy objective to aim at.  You either have very safe investments/savings that return less than inflation or much higher risk ones that should return significantly more over the long term.  It seems to me he may as well put the whole lot into a single 20%-40% equity multi-asset fund keeping sufficient in cash (say £100K) to deal with any major expenses that may turn up.  There is nothing to justify anything more complex.

El_Torro

Linton said:

Growing as fast as inflation is not an easy objective to aim at.  You either have very safe investments/savings that return less than inflation or much higher risk ones that should return significantly more over the long term.  It seems to me he may as well put the whole lot into a single 20%-40% equity multi-asset fund keeping sufficient in cash (say £100K) to deal with any major expenses that may turn up.  There is nothing to justify anything more complex.

Can you elaborate on why a 20/80 fund or 40/60 fund would be more suitable than a 60/40 fund?

Based on his circumstances I think he has enough assets to be able to ride out a lot of volatility and only sell his investments when market conditions are favourable. I think that going too cautious will just hurt the returns in the long term. It's likely to be at least 10 years before he needs to touch this money.

Alistair31 said:

Might it be wise to give some to his adult children ? 

I doubt they would complain  Especially since they have kids of their own who's futures they could improve with this money. I don't think he wants to do this, though I haven't pushed that point with him until now. His kids have enough money of their own, though certainly not as wealthy as he is / has been throughout his life. I'm sure they could find a use for it though.

There are some real concerns in doing this. For example if he does go to a home and his money runs out it's my understanding that he would not get support from the state since he has already deprived himself of some assets. I think the risk of a care home eating up all his assets is low, considering how much he already has (especially since his DB pension and State Pension can go towards paying for fees), he seems to think it's a risk though. He seems to think he's going to live a very long time in a very expensive care home. 

Also if he dies in the next few years any money he gives away now will count as part of his estate for Inheritance Tax purposes. Probably not a big concern since the remaining money in the estate should be enough to cover any taxes.

Linton

El_Torro said:

Linton said:

Growing as fast as inflation is not an easy objective to aim at.  You either have very safe investments/savings that return less than inflation or much higher risk ones that should return significantly more over the long term.  It seems to me he may as well put the whole lot into a single 20%-40% equity multi-asset fund keeping sufficient in cash (say £100K) to deal with any major expenses that may turn up.  There is nothing to justify anything more complex.

Can you elaborate on why a 20/80 fund or 40/60 fund would be more suitable than a 60/40 fund?
............

Because of your comment that he is only interested in matching inflation.  There is no point in taking risk to gain more wealth when you dont know what to do with the wealth your aleady have.  There are good reasons not to - a fall during a crash could cause more unhappiness and worry than the happiness from extra gains in the good times.

NottinghamKnight

Has he thought about handing over the management of the properties to an agent and still taking the income, there would be costs but remove hassle. There would be a large amount of cgt to pay on that sum as well, so that's a consideration. HL would be expensive for that large a sum in funds, fixed fee providers could potentially save hundreds a year in fees. 

Albermarle

 He seems to think he's going to live a very long time in a very expensive care home. 

This is always a possibility but I think rather a small one . Most people do not actually end up in a care home, and those that do normally are I think there only a couple of years on average .

steampowered

There's really no need for this gentleman to be conservative in his investing strategy. Since this gentleman does not need immediate access to the money, and would only need to drawn down on a part of it to fund e.g. care home costs, 100% equity exposure seems more sensible than a 60/40 fund.

He should also move away from St James Place. I would not at all be surprised if he has paid them £100k+ in fees.

Linton

steampowered said:

There's really no need for this gentleman to be conservative in his investing strategy. Since this gentleman does not need immediate access to the money, and would only need to drawn down on a part of it to fund e.g. care home costs, 100% equity exposure seems more sensible than a 60/40 fund.

He should also move away from St James Place. I would not at all be surprised if he has paid them £100k+ in fees.

You with experience of equity investing may well take the view that this £500K could almost be regarded as play money.  If it's not needed why not make more.  However as we often see on this forum people without that experience can be extremely worried about  even relatively small falls.  The OPs relative presumably is not an experienced investor, otherwise he would be sorting a portfolio himself.  Why create worry when none is needed?

Also, we are not discussing the matter with the relative but rather someone who may be advising him.  When advising on other people's money one should be a lot more cautious than if it were one's own.  If the relative took advice to do as you suggest what would happen in the next Great Crash?  I doubt he would just shrug his shoulders and say "well I didnt need it anyway so what's the problem?".  More likely perhaps there would be a quick call to his solicitor to rewrite the will.

Albermarle

100% equity exposure seems more sensible than a 60/40 fund.

From your perspective maybe but for most people would be not the right move, as Linton explains.
He should also move away from St James Place. I would not at all be surprised if he has paid them £100k+ in fees.
This is better advice !

DireEmblem

Agree with moving away from SJP, surely he can easily use the excuse that he's of an age where he wants to start enjoying his money.

Similarly, that 500k would setup any family rather well if they looking to pass on his fortune.

There is also a question we are missing - how do they plan to enjoy retirement.  Why not see the reward for the savings they have been able to make?